2. Judgment before remanding

Seoul High Court Decision 2009Nu15328 Decided November 26, 2009

The Defendant imposes on the Plaintiff on April 5, 2007:

A. The lawsuit on the portion of KRW 109,612,407 out of the value-added tax of KRW 1,174,688,430 for the first term portion of KRW 203 shall be dismissed, and the plaintiff's claim on KRW 374,219,890 shall be dismissed; and

B. The lawsuit on the part of KRW 36,846,00 among the value-added tax for the second period portion of KRW 2003 is dismissed, and the plaintiff's claim on KRW 151,800,000 is dismissed; and

C. The Plaintiff’s claim on KRW 168,512,160 of value-added tax for the first term portion of KRW 181,352,160 in 204 is dismissed.

2. Of the total litigation costs, 50% is borne by the Plaintiff, and the remainder is borne by the Defendant, respectively.

The Defendant’s disposition of imposition of value-added tax for the second term portion for the year 2002 against the Plaintiff on April 5, 2007 was revoked [However, the part of the claim seeking revocation of the disposition of imposition of value-added tax for the second term portion for the year 2002, including the submission of the aggregate tax invoices for the second term portion for the year 2003, 1,174,68,430 won for the first term portion for the year 203, 216,246,000 won for the second term value-added tax for the year 203, and 181,352,160 won for the first term portion for the year 204, 25,680,000 won for the corporate tax for the year 204, and 25,680,000 won for the second term portion for the year 202, 203, and the first term portion for the first term portion for the year 2004).

2. Purport of appeal

The judgment of the first instance is revoked. The plaintiff's claim is dismissed.

A. △△ Incorporated Co., Ltd. (hereinafter referred to as "non-party company") was established on October 21, 2002 for the purpose of wholesale and trade business on the spot on October 21, 2002. The Plaintiff owned all shares of the non-party company and is in office as representative director from December 31, 2002.

B. On October 28, 2002, as indicated in the details of issuance of sales tax invoices, the non-party company supplied 49 tax invoices (hereinafter referred to as "the sales tax invoice in this case") at zero (35,030,382,000 won for four domestic gold bullion wholesalers, such as D.D. on June 27, 2003; (2) on April 16, 2003-12, 204, on May 12, 2004, the non-party company purchased or sold gold bullion purchased from 200,000 won from 35,030,030,000 won for supply price; and (3) on May 2, 2004, the Plaintiff purchased 40,000 won for three (6,065,99,000 won for five (4,000 won for five (5,000 won for five (14,000 won for five (3) gold bullion).

C. The director of the Seoul Regional Tax Office determined each of the tax invoices of this case as "tax invoices different from the facts" as a result of the investigation of the offense against the non-party company, and on July 1, 2006, the defendant corrected and notified the value-added tax and the corporate tax as follows.

(1) Value-added tax on the second quarter of 202 7,791,480 won [Non-Submission, etc. of List of Total Tax Invoices (hereinafter referred to as "non-Submission, etc.")]

Additional tax for submission, etc.)

② The value-added tax amount of KRW 1,198,195,830 for the first quarter of 2003 (340,199,90,90, and additional tax of KRW 714,363,540 for the failure to file a return, etc., and additional tax of KRW 34,019,90 for the failure to file a return, and additional tax of KRW 109,612,407 for the failure to file a return, etc.) was corrected on September 27, 2006 and the sum of value-added tax was 1,174,68,430 for the following reasons:

(3) Value-added tax for the second quarter of 2003 (value-added tax for the second quarter of 2003 KRW 27,600,000 for the denial of the deduction of a purchase tax amount and KRW 27,60,000 for the failure to file a return, etc., and penalty tax for the failure to file a return, KRW 13,80,000 for the second quarter of 203, and penalty tax for the failure to file a return, KRW 36

(4) Value-added tax for the first period of 2004 KRW 12,840,00 for non-declaration of the input tax deduction, and KRW 12,840,00 for non-declaration of the return, such as non-declaration of the input tax deduction, and KRW 12,840,00 for non-performance of the return, and KRW 27,272,160 for non-performance of the return)

(5) Corporate tax belonging to the business year 2004 KRW 25,680,000 (additional tax for collecting evidence)

D. On April 5, 2007, when the non-party company did not pay taxes, the defendant designated the plaintiff as the second taxpayer and notified the plaintiff to pay the value-added tax and the corporate tax (hereinafter referred to as the "disposition of this case").

E. The Plaintiff won the instant disposition in the first instance trial, and the lower court rejected the Defendant’s appeal. The Supreme Court partially accepted the Defendant’s appeal and reversed the part on the imposition of value-added tax for the first and second years in 2003 and the first term portion in 2004 except for the penalty tax such as non-Submission of the judgment before remand, and dismissed the remainder of the appeal. Therefore, the scope of the judgment after remand is limited to the above reversed part (B, III, and the portion on the rejection of input tax deduction, declaration, and unfaithful payment of the value-added tax among the value-added tax stated in the No.4) and the remainder of the judgment before remand (i.e., the part on the value-added tax stated in the No. 1, 2, 3, and No. 4, and the portion on the corporate tax stated in the No. 1).

On the other hand, on July 2, 2008, the defendant reduced or corrected the portion of the penalty tax in bad faith among the value added tax stated in paragraph (3).

[Ground of recognition] Facts without dispute, Gap 1-3 evidence, Eul 1-10, 29-35 evidence, the whole purport of the pleading

2. Whether a lawsuit regarding a reduction or correction was legitimate in the disposition of this case

Since the portion of KRW 109,612,407 (the first term portion) and KRW 36,846,00 (the second term portion) equivalent to the penalty tax for unfaithful payment among the value-added tax for the first and second term portion in 2003 has already been extinguished by reduction or correction, it is unlawful as the lawsuit on the said portion is against the disposition which has not been extinguished, and there is no benefit of lawsuit.

3. The part citing the judgment of the court of first instance

이 법원이 '가. 원고의 주장 나. 관계법령 다. 인정사실 라. 판단 (1) 부가가치세 부과 처분 부분'에 관하여 쓸 이유는 7쪽 9-10째 줄 '중 2002년 제2기분 전부와 ◇◇젬에 대한 2003. 1. 22.자 거래' 부분과 13째 줄 '합계 4,594,615,688원' 부분을 각 삭제하고, 9쪽 4째 줄 '소외 회사는' 다음에 '위와 같이 일부 기재사항이 누락된 구매확인서를 교부받은 일부 거래를 포함한'을 추가하는 외에는 제1심 판결 이유 중 해당 부분(3쪽 아래에서 3째 줄-9쪽 아래에서 3째 줄) 기재와 같다. 행정소송법 제8조 제2항, 민사소송법 제420조 본문에 따라 인용한다.

4. Judgment on the assertion of violation of good faith

A. Defendant’s assertion

In light of the distribution channel of the gold bullion of this case, the Defendant’s filing of input tax deduction and refund cannot be permitted against the principle of trust and good faith.

B. Determination

1) Article 15 of the former Framework Act on National Taxes (amended by Act No. 9911, Jan. 1, 2010; hereinafter “the Framework Act on National Taxes”) provides that “where a taxpayer performs his/her duties, he/she shall faithfully engage in such duties.” This principle also applies to the legal relationship pertaining to value-added tax (see Articles 1 and 3(1) main text of the Framework Act on National Taxes). Such principle applies as a matter of course to the legal relationship pertaining to value-added tax. In a series of continuous transactions, a malicious entrepreneur is willing to evade value-added tax from the initial stage, and only if he/she fails to generate profits and avoid value-added tax only by the method of evading value-added tax (hereinafter “illegal transaction”), an exporter’s seeking deduction and refund of input tax at all stages is contrary to the principle of good faith as stipulated in Article 15 of the Framework Act on National Taxes, and thus, it cannot be permitted for the exporter to make a refund of input tax at least 100 percent (see, e.g., Supreme Court en banc Decision 201014Du17.

2) The sales tax invoice of this case is related to the sales of zero-rate tax rate in Korea. In light of the transaction behavior, distribution channel, the period, quantity and value of the transaction by the non-party company, and criminal punishment for the relevant transaction partners, etc., the non-party company should be deemed to have known or failed to know by gross negligence that there was a malicious business operator who makes illegal transactions for the purpose of evading the output tax amount at the time of the transaction of this case.

It is not permissible for the non-party company to claim the input tax deduction and refund against the principle of trust and good faith as stipulated in Article 15 of the Framework Act on National Taxes.

5. Conclusion

A claim for the cancellation of penalty tax for insincerey payment of penalty tax for the amount of reduction 109,612,407 (the first term portion) and 36,846,000 (the second term portion) from among value-added tax for the second term portion in 2003 is unlawful. A claim for cancellation of the above part in the judgment of the first instance shall be dismissed.

Of the value-added tax for the first period portion of 2003, 374,219,890 won among the value-added tax for the first period of 2003 (340,199,900 won denied the deduction of a purchase tax, and 34,019,90 won for failure to file a return), 151,80,000 won among the value-added tax for the second period of 203 (138,000,000 won denied the deduction of a purchase tax, and additional tax for failure to file a return, 168,512,160 won among the value-added tax for the first period of 204 (128,40,000 won against the rejection of a purchase tax deduction, and 12,840,000 won for a failure to file a return, and 27,272,160 won for a failure to file a return), the plaintiff's claim is dismissed. The plaintiff's claim is dismissed.